Incentivizing the direction of multi-capital toward inclusive capitalism

ABSTRACT

The financial system has been extraordinarily successful at moving capital to where it can create more financial value. But it has not been successful at moving capital to create social or environmental value. The result is large swaths of society and the environment that continue to need capital even as our global economy grows year over year. The resulting tension between those that have and those that need capital is leading to new frameworks for how capital can be conceived, measured and balanced. These multi-capital approaches bear the potential to create more responsible and sustainable companies. However, too frequently, multi-capital approaches are presumed to lead to inclusive or equitable distribution. This is a problematic presumption as one does not necessarily lead to the other and unless mechanisms are put into place to guide the development of multi-capital frameworks, the potential exists to exacerbate the disproportionate concentration of social and natural resources toward more wealthy groups of people. This paper explores the link between evolving multi-capital (financial, manufactured, social, intellectual, environmental and human capital) approaches and our ability to create more inclusive and equitable distribution of wealth and argues that in order to link multi-capital and inclusive capitalism, a series of fundamental reforms in shareholder agency will need to be adopted.

KEYWORDS:

• Sustainable finance
• Shareholder engagement
• Multicapital
• Inclusive capitalism

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributor

Todd Cort is a faculty member at the Yale School of Management, Faculty Co-Director for the Yale Center for Business and the Environment (CBEY) and Faculty Co-Director for the Yale Initiative on Sustainable Finance. He holds a Ph.D. in Civil and Environmental Engineering, Master’s and Bachelor’s degrees in biochemistry and a Professional Engineer’s license in California. Dr. Cort previously served as Director of Sustainability Advisory services for TUV Rheinland and Det Norske Veritas. He works on metrics at the intersection of corporate responsibility and sustainable finance.

Notes

1 Friedman (1970).

2 Smith (1997).

3 See for example: Kramer and Porter (2011) and Esty and Winston (2009).

4 Nakamura (1999).

5 OECD (2017).

6 Piketty, Saez, and Zucman (2016).

7 Banerjee (2008).

8 EY (2016).

9 IIRC (2013).

10 Ibid.,

11 Several fields of study have sought to better monetize intangible assets including the field of impact investing and Social Return on Investment. Readers are referred to two resources that serve as introductions to these fields: Mook, Quarter, and Richmond (2007). nd Clark, Emerson, and Thornley (2014).

12 For more information see the TCFD and CDSB websites: www.fsb-tcfd.org; www.cdsb.net.

13 Stout (2012).

14 Crane, Graham, and Himick (2015).

15 Kramer and Porter (2011).

16 Bower and Paine (2017).

17 Inclusive Capitalism integrates basic economic theories on how capitalism can (or cannot) can create more equitable distribution of wealth among people. In its modern use, it refers more specifically to activities of companies that can generate wealth opportunities for people at the bottom of the economic pyramid. The modern use of the term originated from C.K. Prahalad (among others) when discussing economic disparity for the world's poor (Prahalad 2006). More recent work to translate theory into corporate practice has been championed by the Coalition for Inclusive Capitalism (https://www.inc-cap.com).

18 See for example capital valuation protocols and frameworks developed by the Natural Capital Coalition (http://naturalcapitalcoalition.org/protocol/), World Business Council for Sustainable Development (http://www.wbcsd.org/Clusters/Social-Impact/Social-Capital-Protocol), IIRC (http://integratedreporting.org/wp-content/uploads/2015/03/13-12-08-THE-INTERNATIONAL-IR-FRAMEWORK-2-1.pdf) EY (http://www.ey.com/uk/en/services/assurance/ey---long-term-value) Chartered Institute of Management Accountants (http://www.cimaglobal.com/Documents/Thought_leadership_docs/reporting/Cima_Business_Model.pdf), Impact Valuation Roundtable (http://www.nestle.com/asset-library/documents/creating-shared-value/impact-valuation-roundtable-white-paper-2017.pdf) and the International Standards Organization – ISO 14008 (https://committee.iso.org/sites/tc207sc1/home/projects/ongoing/iso-14008.html).

19 Bower and Paine (2017).

20 http://www.kering.com/en/sustainability/epl

21 Natural Capital Protocol: http://naturalcapitalcoalition.org/protocol/ Task Force on Climate-related Financial Disclosures: https://www.fsb-tcfd.org Integrated Reporting: https://integratedreporting.org Redefining Value: http://www.wbcsd.org/Overview/Our-approach/Redefining-value Embankment Project: https://www.inc-cap.com/embankment-project/ UN PRI: https://www.unpri.org

22 The World Business Council for Sustainable Development has recently launched ‘The Reporting Exchange’ and identified over 1776 regulations around the world on disclosure of non-financial information (http://www.wbcsd.org/Projects/Reporting/The-Reporting-Exchange).